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22.09.2020 04:10 PM
09/22/2020 GBP/USD Analysis: Andrew Bailey gave hope to the British Pound but demand for the Pound remains low

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The construction of a new downward section of the trend continues. The continued decline in quotations suggests the completion of the construction of wave 2 as part of this section has taken a rather shortened form. A successful attempt to break through the minimum of the expected wave 1 allows us to conclude that the markets are ready for further sales of the British Pound. The chart clearly shows the drop in demand for the British currency in recent weeks. Thus, the downward section of the trend is likely to continue its construction.

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During the last trading day, the GBP/USD instrument lost about 120 basis points, and today, it lost several dozen more. There are more and more chances that the construction of the expected correction wave 2 or b is completed despite the unsuccessful attempt to break the 61.8% Fibonacci level. At this time, quotes may start moving away from the reached lows but according to the current wave markup, wave 3 or C has already begun its construction and should continue it with goals located below the 61.8% Fibonacci mark.

The Pound had some good news today. The Bank of England's Governor, Andrew Bailey, spoke at the Association of British Chambers of Commerce webinar. During his speech, he said that the Bank is not going to lower interest rates below zero in the near future. Let me remind you that over the past few months, there has been persistent speculation in the foreign exchange market that the central bank of Great Britain may lower rates even more since the current parameters of monetary policy are not enough for the economy to recover at the right pace. In the coming months, the UK economy may face new problems in the form of a second wave of COVID-2019, as well as the lack of a free trade agreement with the European Union. Thus, it is almost 100% likely that new incentives will be needed. One of the strongest incentive tools is just lowering the key rate, which is currently already at the minimum level of 0.1%. The markets have long been waiting for the transition to the negative area. According to Bailey, the Bank of England should be confident that it can lower rates at the right time but this does not mean that this will necessarily happen in the near future. After these words, the demand for the British pound increased slightly, which helped it to add even about 90 points from the day's low. However, in the future, I believe that the decline in the instrument's quotes will continue, since the wave markup assumes this scenario.

General conclusions and recommendations:

The Pound-Dollar instrument has presumably completed the construction of the upward wave Z and the entire upward trend section. At the same time, there is a high probability of building a correction wave 2 or B, which could also have already completed its construction near the level of 38.2%. An unsuccessful attempt to break this mark allows the markets to start selling the instrument with targets located around 1.2721 and 1.2539, which is equal to 61.8% and 76.4% according to Fibonacci, based on the construction of the third wave.

Chin Zhao,
Analytical expert of InstaForex
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